* Economy sheds 21,900 jobs, jobless rate drops to 7.0 pct
* Housing starts plunge in January to 160,577 units
* December trade deficit narrows
* Bank of Canada may further soften rate-hike stance
By David Ljunggren and Louise Egan
OTTAWA, Feb 8 Canada's economy unexpectedly shed
jobs in January, while housing starts plunged, suggesting global
uncertainty, weak prices for Canadian oil, and a government
clampdown on the property market will drag on growth in early
A slew of weak data released on Friday quickly knocked the
Canadian dollar below parity with the U.S. dollar. Adding to the
gloom were figures showing Canada posted a record trade deficit
Statistics Canada said 21,900 people lost their jobs in
January, surprising markets, which had expected a gain of 5,000
jobs after two very strong months of employment growth.
The jobs data could push the Bank of Canada off its
slightly hawkish tilt, said Mark Chandler, strategist at RBC
The central bank has been saying for months that it will
need to increase, not cut, interest rates, although in January
it said that move was "less imminent".
"Clearly ... jobs creation last year was unsustainable and
we have to brace ourselves for something more sustainable this
year," said Stefane Marion, chief economist at National Bank
"You might have to reassess your growth expectations for the
domestic economy this year, which means, in my view, that the
Bank of Canada remains on the sideline through this year and no
move before early 2014."
The Bank of Canada last month slashed its forecast for
fourth quarter annualized growth to 1.0 percent from 2.5
Challenges for the economy include weak foreign markets, a
relatively strong Canadian dollar and discounted oil prices that
are cutting into government revenues. In addition, Ottawa moved
last June to clamp down on access to government-backed mortgages
in an effort to curb rapidly rising housing prices.
In a sign the housing market is cooling far faster than
expected, housing starts fell steeply in January to 160,577
units from 197,118 in December, according to the Canada Mortgage
Canada's trade deficit in December decreased by almost half
to C$901 million from the previous month. But the trade gap hit
a record high of C$11.92 billion for 2012 as a whole.
Analysts had expected employment growth to slow in January
but were taken aback by the magnitude of the downturn.
"Bit of a surprise," said Michael Gregory, chief economist
at BMO Capital Markets. "This number has to be taken in the
context of what has happened in the months before, so the
underlying trend is probably more reflective now of the overall
economy," he said.
Although the number of people out of a job increased, a drop
in the number seeking work pushed the unemployment rate down to
a four-year low of 7.0 percent.
The Canadian dollar slipped as low as C$1.0037 to
the U.S. dollar, or $0.9963, on Friday, its lowest level since
Jan. 30, reflecting the weaker-than-expected employment and
Overnight index swaps, which trade based on expectations for
the central bank's key policy rate, showed traders lowered their
already small bets on a rate hike in late 2012.
Canadian exporters - a major driver of the economy - had a
year to forget in 2012, when political and fiscal uncertainty
undermined demand in major markets such as the United States and
"We in Canada were mediocre in terms of sales to our key
customer, the United States ... and we had a terrible track
record with the EU and Japan," said Peter Hall, chief economist
at Export Development Canada.
Hall told Reuters there was evidence of a strong pick-up in
demand in certain key U.S. sectors, such as auto sales, which
would start to be reflected in Canadian exports.